Facts About Vermont's 529 Plan

A 529 college savings plan is a great way for parents to start saving money to lessen the burden of soaring college costs. Established as the Qualified Tuition Program in section 529 of the federal tax code, the 529 plan is a "tax-advantaged investment plan designed to encourage saving for future higher education expenses of a designated beneficiary," according to CollegeSavings.org. Families can invest money and watch it grow over time based on investment performance.

Withdrawals from the 529 plan that are used for qualified educational expenses are exempt from federal income tax. Qualified expenses include items such as tuition, fees, supplies, and books. Many states, including Vermont, offer their own tax incentives to promote saving for college.

Vermont offers a 10 percent state tax credit on contributions up to $2,500 per year per beneficiary for single tax returns and up to $5,000 per year per beneficiary for joint tax returns. The credit applies only to contributions made by the account owner and by a person filing a joint tax return with the owner, although others may contribute to the plan as well. The tax credit also applies to the principal part of a rollover from another 529 plan as long as the funds stay in the account for the duration of that tax year.

The Vermont Higher Education Investment Plan is the only 529 plan available in Vermont. It is a direct purchase plan that offers one age-based option, in which asset allocation changes over time, and five static investment options to accommodate risk levels ranging from conservative to aggressive.

Vermont's 529 plan requires a minimum initial contribution of $25 per investment. Subsequent contributions are set at a minimum of $25 per investment, although that requirement changes to $15 per investment per pay period for those with automatic payroll deduction. The maximum total of contributions on all balances for a beneficiary is capped at $352,800 in this plan.

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